What Percentage of Income Should Go to Retirement?

What percentage of income should go to retirement? There is no blanket answer. Anyone giving you an exact percentage for everyone is guessing.

Retirement, or chapter two as I call it, is customizable. It depends on your income needs, your existing guaranteed income streams, and your overall financial situation.

Key Takeaways

There is no universal retirement percentage rule
The industry guideline suggests no more than 50 percent of investible assets in annuities
Social Security, pensions, and RMDs are annuity-type income
Retirement planning starts with defining your income floor
Annuities should be used to contractually solve a specific income gap

Is There a Standard Retirement Percentage?

No.

There is no fixed percentage of income or portfolio that automatically belongs in retirement planning products.

According to industry guidance referenced in the transcript, you generally should not place more than 50 percent of your investible assets into annuities. Investible assets do not include your home, car, or personal property.

The 50 percent figure is a ceiling, not a requirement.

What Counts as Retirement Income You Already Own?

Many people already own annuity-type income streams without realizing it.

These include:

Social Security
Required Minimum Distributions from IRAs
Pensions, if available
Dividend income or other recurring income sources

Social Security is described as the best inflation annuity on the planet. RMDs function as recurring income because the IRS requires annual withdrawals once you reach the appropriate age.

These sources must be added up before determining whether additional income is needed.

How Do You Determine the Right Amount for Retirement?

The starting point is defining your income floor.

Add up all guaranteed and recurring income. If that amount covers your required expenses, there may be no need for additional annuity purchases.

If there is a gap between your income floor and your guaranteed income sources, that is where additional planning begins.

When Should Annuities Be Used?

Annuities should be used to contractually solve a specific problem using the least amount of money necessary.

They are commodity products, meaning multiple carriers compete with different pricing. Quotes change regularly, and it is important to compare carriers.

Annuities should be purchased for what they will contractually do, not for hypothetical projections or upfront bonus features.

What About Upfront Bonuses and Marketing Claims?

Upfront bonuses are part of the overall contractual structure and should not be the sole reason for purchase.

If a product sounds too good to be true, it likely is. The focus should remain on contractual guarantees and clearly defined income goals.

Final Thoughts on Retirement Percentages

There is no universal percentage of income that should go to retirement.

Start by calculating your income floor. Add up the annuity-type income streams you already own. If there is no gap, additional annuities may not be necessary.

If there is a gap, annuities can be structured to contractually solve that income need while staying within reasonable asset allocation guidelines.

If you want to evaluate whether your current income sources are sufficient or determine how much of your investible assets should be used to solve an income gap, schedule a free consultation with The Annuity Man team.